The Canadian hospitality industry has been brought to its knees by the novel coronavirus (COVID-19) pandemic. Hotels, restaurants and other foodservice businesses were among the first and hardest hit by the impacts of COVID-19, and they will likely be among the slowest to return to profitability.
From an insurance perspective, this sucker punch could not have come at a worse time for the hospitality industry. The sector has been “challenged” for some time by hardening market conditions, characterized by inflated insurance premiums, coverage restrictions and an ongoing reduction in market capacity. Unfortunately, it looks like the COVID-19 pandemic is only going to exacerbate these pre-existing conditions in the marketplace.
Hospitality risks started performing poorly back in 2018, according to Tyson Peel (pictured above), vice president, director of property & casualty, Burns & Wilcox Canada. That trend – caused largely by poor losses on the liability side, security-related incidents, an uptick in drinking and driving, as well as increased property damage claims - continued through 2019 and shows no sign of reprieve amid 2020’s public health crisis.
“We’ve seen some dramatic rate increases in Canada. Minimum premiums have jumped dramatically from where they were in early 2019, and this is definitely because of the poor results that we’ve seen in the sector,” said Peel. “We’ve also seen a big reduction in commercial property capacity. We’re seeing a lot of players pull out of this marketplace, limiting their line size, and reducing the overall percentage that they want to participate on this class of business.
“A lot of the market is becoming more sophisticated. [Insurers and MGAs] are using actuarial teams to review the results and really drill down into individual sectors. Hospitality has been a big one where they’ve seen that it hasn’t been performing in a positive manner. As a result, a lot of the markets in Canada are really trying to change their underwriting so that they can make an underwriting profit. We’ve seen that across the board – the domestics, plus the Lloyd’s markets – because the whole Canadian marketplace has been impacted by the challenging conditions.”
COVID-19 has added created additional challenges for the Canadian hospitality sector. Many businesses have been closed for three to four months, and as provinces take a phased approach to reopening, they’re now having to adapt their business models to meet new public health-related restrictions. As such, underwriters - who were already scrutinizing their hospitality books to find efficiencies – are readjusting their risk appetites once again, taking an even closer look at the financial viability of hospitality clients in these uncertain times.
This is when clients lean more heavily than ever on their insurance brokers, not only to source adequate and affordable insurance coverage (a challenge in itself, considering the hardening market conditions prior to COVID-19), but also for personal and business advice. Karim Chandani (pictured below), vice president of hospitality at HUB International in British Columbia, told Insurance Business he’s never felt more connected to some of his clients.
He said: “I actually shed tears with some of my clients, and it was very difficult to hear their stories because I was putting myself in their situation. What this has done for me is it’s made me more connected with my clients. Our relationship has got stronger because we’ve been giving them advice and every step of the way, we’re in communication with our clients.”
Clear communication is a steadfast pain reliever when delivering bad news, whether that’s a 50% premium increase because of a hardening market or a denied business interruption claim amid the pandemic. While clarity of communication cannot prevent the punch, it can certainly lessen the blow – and this is something insurance brokers should definitely keep in mind.
